Monetary Policy Measures and Economic Stabilization in Nigeria (1999-2019)
CHAPTER ONE
Objective of the study
The objectives of the study are;
- To ascertain how monetary policy influenced output in Nigeria
- To examine the impact of interest rate on growth
- To examine the average price affected the level of output in Nigeria
CHAPTER TWO
REVIEW OF RELATED LITERATURE
CONCEPTUAL REVIEW
The Central bank of Nigeria (CBN) defined monetary policy, as a deliberate action of the monetary authorities to influence the quantity, cost and availability of money credit in order to achieve desired macroeconomic objectives of internal and external balances. The action is carried out through changing money supply and/or interest rates with the aim of managing the quantity of money in the economy.(H. Johnson) defines monetary policy “as policy employing central bank‟s control of the supply of money as an instrument for achieving the objectives of general economic policy.” Shaw (1999) defines it as “any conscious action undertaken by the monetary authorities to change the quantity, availability or cost of money.” Monetary policy is known to be a vital instrument that a country can deploy for the maintenance of domestic price and exchange rate stability as a critical condition for the achievement of a sustainable economic growth and external viability (Adegbite and Alabi; 2013). Since its establishment in 1959 the Central Bank of Nigeria (CBN) has continued to play the traditional role expected of a central bank, which is the regulation of the stock of money in such away as to promote the social welfare (Ajayi, 1999). This role is anchored on the use of monetary policy that is usually targeted towards the achievement of full-employment equilibrium, rapid economic growth, price stability, and external balance. Over the years, the major goals of monetary policy have often been the two later objectives. Thus, inflation targeting and exchange rate policy have dominated CBN‟s monetary policy focus based on assumption that these are essential tools of achieving macroeconomic stability. Over the years, the major goals of monetary policy have often been the two later objectives. Thus, inflation targeting and exchange rate policy have dominated CBN‟s monetary policy focus based on assumption that these are essential tools of achieving macroeconomic stability (Aliyu and Englama, 2009). The most popular instrument of monetary policy was the issuance of credit rationing guidelines, which primarily set the rate of change for the components and aggregate commercial bank loans and advances to the private sector. The sector allocation of bank credit in CBN guidelines was to stimulate the productive sectors and thereby stem inflationary pressures. The fixing of interest rate at relatively low levels was done mainly to promote investment and growth.
CHAPTER THREE
RESEARCH METHODOLOGY
Model Estimation and Data Issues
From the foregoing review, the paper adopts the Error Correction Model to reassess the monetary policy measure and economic stabilization Nigeria. The model is expressed thus:
RGDP = f (IR, CRR, MPR) ………………………………………………….. (1)
Where;
RGDP = Real Gross Domestic Product
IR = Interest Rate
CRR = Cash Reserve Ratio
MPR = Monetary Policy Rate
In our model, RGDP measures economic growth of Nigeria while IR, CRR, MPR are our monetary policy variables, whose impacts were reassessed in this study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
EMPIRICAL RESULTS
By the rule of thumb and assuming every other thing remains equal/constant we employed the Ordinary Least Square (OLS) and other time series estimation techniques to test the hypotheses in this study.
From the results estimated above, Cash reserve ratio was statistically significant while Interest rate, monetary policy rate were statistically insignificant. The results therefore, showed that a unit increase in Cash reserve ratio led to approximately 7 units increase in economic growth in Nigeria.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the monetary policy measures and economic stabilization in Nigeria from 1999 -2018
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges the monetary policy on the economic stabilization in Nigeria
Summary
This study was on monetary policy measures and economic stabilization in Nigeria from 1999 -2018. Three objectives were raised which included: To ascertain how monetary policy influenced output in Nigeria, to examine the impact of interest rate on growth and to examine the average price affected the level of output in Nigeria. The information for the data were gotten form CBN.
Conclusion
The results arising from this study showed that the most effective monetary policy tool among the tools reassessed was Cash reserve ratio as a unit increase in Cash reserve ratio resulted to improvement in economic growth by 7 units without increasing the inflationary pressure in the Nigerian economy.
Therefore, the study recommends that monetary authorities in stabilizing the Nigerian economy should give priority attention to Cash reserve ratio as it will produce a more desired result in terms of economic stabilization.
In the light of the above, the issue of broad monetary policy instruments should be critically looked into by the monetary authorities especially in Nigeria because it can be sometimes dangerous for the economy; rather efforts should be put in place in ensuring that commercial banks (Deposit Money Banks) follow Central Bank’s guideline for financial intermediation. Moreover, the recent Central Bank’s policy of cashless society should be genuinely pursued with vigor as it will help in minimizing inappropriate moves by commercial banks to meet their customers’ demand at the expense of macroeconomic policy objectives
Recommendation
Monetary policies should be used to create a favourable investment climate by facilitating the emergency of market based interest rate and exchange rate regimes that attract both domestic and foreign investments, create jobs, promote non-oil export and revive industries that are currently operation far below installed capacity. In order to strengthen the financial sector, the Central Bank has to encourage the introduction of more financial instruments that are flexible enough to meet the risk preferences and sophistication of operators in the financial sector.
For monetary policy to have a desired impact on the real economy and inflation, which is the fundamental objective of monetary policy, it is essential that changes in the short-term market interest rate should ultimately transform into changes in other interest rates in the economy (that is, interest rate changes are passed through to retail interest rates for loans and deposits), which then influence the overall level of economic activity and prices
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